Photovoltaic profit levy: What should operators be paying attention to now?

Photovoltaic profit levy: What should operators be paying attention to now?

Many people in the photovoltaic industry are currently wondering how to correctly transfer their profits to the state. They are mandated to do so by the electricity price brake law (the StromPBG, in German). This complex bureaucratic beast subsidises electricity, which has become more expensive during the energy crisis. In order to counter-finance this, it skims “windfall profits” from power plant operators. Because of the stock market design, low-cost energy sources such as photovoltaics are currently benefiting from high electricity prices on the stock market.

In order to cast a little light on the profit levy, we have put together a few answers to the most important questions facing operators of photovoltaic systems in this article.

No matter how you feel about the profit levy (= revenue skimming) and even if you’d actually prefer to concentrate fully on the transition to clean energy, the issue must be carefully thought through. Errors will have severe consequences, and economically significant decisions must be made.

After reading this article, you should be able to classify whether you are affected by the revenue skimming and fundamentally understand what must be observed with regards to the profit levy.

Frequently asked questions and answers: Handling revenue skimming for photovoltaics

Who needs to pay off “surplus profits”?

Starting from one megawatt of installed capacity, PV system operators must pass on surplus profits. Whether the megawatt limit has been legally exceeded must be checked individually in cases of system expansions and mergers on the basis of the remuneration law.

PV systems whose electricity is marketed via subsidised direct marketing or other direct marketing (PPAs) are subject to revenue skimming. However, PV systems with fixed EEG (German Renewable Energy Sources Act) remuneration are excluded.

Also excluded is solar electricity that is consumed directly on-site without making use of the public grid, i.e. own consumption or direct electricity supply contracts.

The law defines operators as various shareholder and company configurations as well as marketing relationships.

Profits from own hedges must also be transferred. These are hedges on the futures market, in which future electricity quantities are traded at a fixed price. However, most “normal” system operators or project developers are not involved with this, as they only commission their direct marketers. Hedge transactions which you carry out yourself or which are carried out by companies affiliated with you must be taken into account (e.g. municipal utilities). Hedge transactions with losses can reduce the amount to be transferred.

Operators of lignite coal, nuclear, waste-to-energy, mineral oil, and wind power plants also have to pay. Bituminous coal, gas, light heating oil, and stored electricity are excluded.

When must the profits be transferred?

The revenues will be skimmed for electricity that was or will be generated in the Federal Republic of Germany between 1/12/2022 and 30/06/2023.

This time period can be extended until 30/4/2024.

Whether or not the period will be extended will be made clear in a report from the Federal Government, which must be made available by the end of May 2023. At that point at the latest, you should be able to see the extent to which you will be asked to pay as a result of the electricity price brake.

Approximately how much do PV operators have to pay?

The energy market experts at Aurora Energy Research have answered this question in a study and calculated what proportion of revenue is skimmed off on average:

  • Subsidised PV systems: -55 percent
  • Non-subsidised PV systems: -36 percent

According to the authors of the study, PV systems subsidised by market premiums are significantly more affected than non-subsidised PV systems due to stricter caps.

These revenue losses during the levy period are serious. The levy will take effect on 1 December 2022 and will end on 30 June 2023 at the earliest, and on 30 April 2024 at the latest. Retroactive intercessions lasting up to September or March were discussed in advance. The levy will therefore apply to old systems for seven to eighteen months for more than twenty years of operation.

However, the long-term economic viability and profitability of renewable energy plants is not threatened by this planned levy in Germany. According to the calculations made by the Oxford University-based analysis company, many renewable energies are profitable for the first time on a large scale without subsidies thanks to the high electricity prices. Even with profit levying, the plants are able to generate higher returns over their entire lifetime than ever before. Here Aurora goes into specifics: For example, the internal rate of return (IRR) is only reduced by about one percentage point over the entire period being considered. The results are, however, differentiated and limited:

  • PV systems that started operation in January 2022 or for which material prices had previously been secured through supplier contracts perform particularly well. These systems benefit particularly from high electricity prices.
  • New PV systems going into operation in January 2023 have a hard time holding their own in the market completely without subsidies through direct marketing, as they have to deal with cost increases caused by inflation. This assessment was confirmed by a survey among members of the German Solar Association (Bundesverbandes für Solarwirtschaft), in which 45 percent of the companies surveyed expect PV projects without subsidies to be uneconomical.

How is the specific levy amount calculated?

In Germany, more is being skimmed off than specified by the EU in October with its “EU Emergency Electricity Regulation”. Different “technology-specific profit caps” (=reference values) apply in the Federal Republic. These values are in essence the amount you are allowed to keep. For photovoltaics, the profit cap is based on the value to be applied, derived from the version of the Renewable Energy Sources Act applicable to the respective PV system.

levy amount

How the surplus profit and the reference value are determined depends on the calculation model used and the type of PV system. In the case of PPAs, under certain conditions you have the choice of being assessed according to either the standard model or the peak billing model.

Standard model for photovoltaics

Standard model for photovoltaics

Surplus profits can be corrected for own hedge transactions.

For photovoltaics, the monthly market value of solar power is used as the price. If the spot market price is below the monthly market value in individual hours, the monthly market value used for these periods can be corrected down using a complex calculation.

The safety surcharge for subsidised systems is 3 cents/kWh. This does not apply to unsubsidised systems.

PPA: Keep your eyes open when choosing the calculation model

In the case of “system-related marketing contracts”, you have a one-time choice or whether to use the standard model or the peak billing model. System-related marketing contracts are PPAs through which solar power is marketed to third parties. The choice also depends on the commissioning date and the contract date. A distinction is also made between existing and new systems.

If you opt for the standard model with a fixed-price PPA, you run the risk of making a loss: namely, if you have to transfer a higher levy amount than your electricity customer pays you. For this reason, the peak billing model is frequently the only economically viable option for fixed-price PPAs.

With the first declaration to the transmission system operator on 31/07/2023, the calculation model selected is then set in stone for all billing periods.

Peak billing model for photovoltaic PPA

Peak billing model for photovoltaic PPA

 As in the standard model, the electricity quantity can be corrected for redispatch electricity quantities and the contract price can be corrected for hedge transactions.

When does what have to be reported to whom?

When does what have to be reported to whom?

When and to whom must payment be made?

The levy amount must be transferred to the network connection operator.

It must be paid for the first time on 15/8/2023 for the time period from December 2022 to April 2023. Afterwards, it is paid quarterly starting 15/12/2023.

Who carries out the assessment?

System operators must assess themselves and calculate how much their “surplus profit” will be.

Should I carry out the assessment myself?

Implementing the assessment is costly in terms of administration, complicated, and easily prone to error. Errors of negligence and misrepresentations will receive stiff penalties and fines.

For these reasons, it makes sense for many operators to seek legal advice from specialised law firms. Alternatively, specialist software can be used which, according to the provider, can carry out calculations and make reports automatically and in a legally secure fashion.

What’s the danger of making mistakes?

The legislator has determined harsh penalties and fines in order to enforce the profit levy. All declarations and payments must be made on time. The assessment is controlled by the Federal Network Agency. It may request information and documents. It also has the right to enter premises.

Anyone making mistakes either from negligence or with intent can be fined up to 4 percent of the annual turnover. Deliberate misrepresentations can be punished with prison sentences of up to five years. In the case of falsified receipts, the penalty is even up to 10 years’ imprisonment.

If a specialist lawyer were to advise you incorrectly on the assessment, they would be liable, provided you can prove a case of advisory error.

If you use specialist software, the provider is liable for calculation errors. As the system operator, you remain responsible for the correct entry of data.

Is the electricity price brake also putting the brakes on the energy transition?

According to the analysts at Aurora Energy, the lengthy discussion regarding the profit levy has unsettled PV companies on the market. The legislator has created a loss of confidence. Additionally, how long the levy will last and therefore the exact costs it will demand are still up in the air, which is only to be expected as no one can foresee how long the energy crisis will drag on. In this mixed environment, the EU Commission’s plans for a fundamental reform of the electricity market design this year are equally unsettling. The material and financing costs of PV systems have also risen. These factors might cause investors to assess the risk of photovoltaic assets more negatively.

Consequently, the energy transition is being slowed down by the electricity price brake, an absurd situation as it is precisely renewable energies that can stabilise and lower electricity prices in the long term – a true dilemma. In principle, solidarity with private and corporate electricity customers is the right move, even if the form it takes remains debatable.